Question

Explain why the classical economists thought there was no inherent tendency in the market system to overproduction, recession, and depression.

Answer 1

Classical Economics in America is a theory that believes by leaving the free market alone without human intervention, in the market the equilibrium can be obtained. They believed that flexibility in price automatically directs market economies on the full employment thus causing no inherent tendency to recession, overproduction, and depression in the market system. Classical economists did not believe that the role of the government should be more prominent. They believe in self regulating economy instead of government intervention. These supported free trade in global market. Free trade occurs when there is elimination of import quotas and tariffs. There is a removal of government subsidies to domestic firms and end of other assistance to government industries. They believed the less codling of firms by government, the more competitive and productive domestic industry becomes